WRITTEN BY:
FinTech Wales
Funding is one of FinTech Wales’ four key pillars, along with Skills, Amplification and Ecosystem. That’s because access to capital is crucial to enabling fintech companies to establish themselves and then to scale.
However, the funding picture for fintechs hasn’t been rosy recently, to say the least. Fintech funding globally has continued to drop year over year since 2021 and the UK is no exception. In H1 2024, across M&A, Private Equity (PE) and Venture Capital (VC), funding dropped by 28%(excluding one outsize deal) to $1.8 billion from £2.5 billion in H1 2023, according to KPMG.
Where funding is being deployed, it is increasingly concentrated at the very earliest stage, where the majority of deals are under $20 million, and the very late stage, where a few deals reach the hundreds of millions. As evidence, take the fact that Abound’s $999 million round and Monzo’s $621 million round together make up $1.6 billion of the UK’s $1.8 billion total.
In short: there is very little money reaching fintechs at other stages of their growth.
That picture is reflected in Wales, where early stage funding remains healthy while scaling stage funding is more scarce. So far in 2024 we’ve seen young fintechs including Validient, Prosper, Peppercorn.ai and Menna raise rounds from £300,000 up to £3.5 million. Meanwhile, Mazuma and Aperidata are two of only a few better-established companies that have publicly announced successful fundraises.
The reasons behind this global trend are varied, but include the fact that high interest rates in recent years mean those providing capital to investors can make higher returns in much less risky ways than investing in fintechs. In turn, that results in investors being much more selective about which fintechs they fund. Some are focusing on companies that have proven business models and can show profitability (i.e. Monzo and Abound) and are therefore lower risk. Meanwhile others are making very small bets on a higher number of early stage, and therefore higher risk, fintechs.
Funding will continue to remain a major concern for fintechs everywhere so long as wider economic conditions persist and capital providers remain cautious. In the meantime, however, one area that can be improved is the geographic areas investors look to deploy in. FinTech Wales is helping them to do that in a number of ways.
Our Investment Day, held in December, is where those involved in all areas of the investing industry come together to run workshops with technology startups and scaleups to help them better understand the funding landscape. In return, the investing industry gains a better understanding of what’s going on here. It’s important to note that those hosting the workshops come from all over the UK, helping to improve wider understanding of the Welsh ecosystem.
We also collaborate with capital providers that have Wales-specific funds including the British Business Bank, Cardiff Capital Region and PWC, and the Development Bank of Wales. Our work in this area is focused on helping the funding providers understand the Welsh fintech landscape and the needs of individual companies. By hosting roundtables and facilitating one-to-one introductions, we provide multiple opportunities for direct conversations between funding providers and businesses.
Additionally, we collaborate with international organisations and initiatives to spread the word about Welsh fintech by speaking at events such as Money 20/20 in Amsterdam and WVC:E’s Summit in Paris, and welcoming delegations from outside the region to Cardiff. These activities help to cement Wales on the map and provide our members with valuable opportunities to connect with investors
face to face.
The global fintech industry does not expect funding rounds and valuations to return to the size they were in 2021, and nor do they need to, any time soon.
However, the investing industry can change and evolve in other ways, and the early signs are promising – as shown by the examples of outside engagement with the Welsh fintech industry highlighted above. We look forward to seeing the results of that engagement in the form of more funding coming to Welsh fintechs.
